Phasing Out Fossil-Fuel Subsidies Vital to Accelerate EV Adoption in G20 Countries

India's CO₂ emissions from transport fuel combustion increased by 375% between 1990 and 2019


Decarbonizing the transport sector poses a substantial challenge for G20 countries as they grapple with varying stages of motorization, decarbonization, and the transition to sustainable transport, according to a report by Agora Verkehrswende, Deutsche Gesellschaft für Internationale Zusammenarbeit, and NITI Aayog.

Over the decades, the transport sector has significantly contributed to global CO₂ emissions, accounting for approximately one-quarter of emissions from fuel combustion and 15% of total greenhouse gas emissions annually.

In G20 countries, transport constitutes nearly one-fifth of energy-related CO₂ emissions, with a steep increase of 64% since 1990 and 79% worldwide. China, India, and Indonesia have witnessed exponential growth in transport emissions, underscoring the need for robust decarbonization strategies.

While some G20 nations have made progress in reducing transport-related emissions, the U.S. remains the largest emitter, contributing 5.4 tons CO₂ per capita in 2019. Despite a worldwide drop in emissions during the COVID-19 pandemic, transport emissions in G20 countries have risen. Only Japan and Germany have achieved emission reductions since 1990, though both still have relatively high per capita emissions.

Around 80% of the energy in the G20 transport sector in 2019 was derived from gasoline or diesel, highlighting the continued reliance on fossil fuels. Moreover, the sector consumes more than half of the global oil demand, leading to fossil fuel dependency and economic burdens.

While economic growth is yet to be decoupled from motorization rates, efforts to reduce emissions must be accelerated.

In recent years, the electric vehicle (EV) market has experienced a remarkable surge in momentum, witnessing exponential growth in G20 countries. The EV fleet in these nations expanded nearly eightfold, reaching an impressive 8.4 million vehicles in 2020, up from around one million in 2015. China and the U.S. led the fleet growth, with 4.9 million and 1.4 million EVs added, respectively. China continued its robust performance, hitting approximately 6 million new EV sales in 2022. Over 90% of all EVs worldwide are concentrated in 25 cities.

Despite the positive EV trends, the transport sector in G20 countries continues to subsidize or exempt fossil fuels from fuel taxation in various forms according to the report. These financial supports include fuel tax credits for businesses in Australia, tax reductions or exemptions in Brazil, USA, Germany, France, and other nations, direct payments to taxi drivers and public transport in China, customs duty reductions for crude oil in India, and generous funding for oil exploration, extraction, and refining as well as stockpiling of crude oil in Japan.

Countries must phase out these subsidies to accelerate the adoption of EVs and align with climate goals in the transport sector. Moreover, merely supporting EV use is insufficient; countries must implement disincentive mechanisms, such as malus systems, to discourage using internal combustion engine (ICE) vehicles and fuel consumption.

Indian Scenario

India’s dynamic economic development and rapid urbanization have driven a surge in mobility demand, moving people and goods a crucial backbone of the nation’s progress. However, this growth has also significantly increased transport emissions, from 105 Mt CO₂ in 2000 to 325 Mt CO₂ in 2019, as noted in the report. While emissions showed an 18.4% growth from 2015 to 2019, per capita emissions increased by 13.5% during the same period. Remarkably, despite robust growth rates, India’s per capita emissions stand at a modest 0.25 metric tons CO₂, the lowest among G20 countries.

While India’s total CO₂ emissions from fuel combustion increased by a staggering 375% between 1990 and 2019, they represent a relatively low share of total emissions, comprising only 14%. This is partly attributed to the high carbon intensity of India’s power generation.

However, projections indicate that transport sector emissions could substantially increase, potentially rising by 65% by 2030 and a significant 197% by 2050 compared to 2020. Road transport remains the primary contributor to sector emissions, closely followed by rail transport, where nearly 7% of sector emissions account for one of the highest shares in the G20.

India has committed to several ambitious measures to address these challenges and embrace a greener future. The country aims to increase the share of rail in freight transport to 45% by 2030 and intends to achieve a 30% share of electric light-duty vehicle sales by the same year. Notably, India signed the COP26 declaration, setting a target to transition to 100% zero-emission cars and vans by 2040.

The Indian government has implemented national, subnational, and municipal measures to support public transport, promote low-carbon freight, and enhance vehicles’ energy and carbon efficiency. From fuel efficiency standards for heavy-duty vehicles to electrifying its railway network, India is taking dedicated actions to ensure a cleaner mobility landscape.

The Gati Shakti platform has been instrumental in integrating new transport systems, while industrial corridors are being planned to shift freight transport towards cleaner modes. Initiatives like high-speed rail projects aim to reduce road and air transport reliance. Additionally, India has invested in metro rail systems, focusing on cost-effective solutions for smaller cities, and emphasized green mobility in urban areas.

Research suggests India’s pursuit of greener policies in passenger and freight transport sectors can avoid up to 1.7 gigatons of CO2 by 2030.

Among G20 nations, India stands out for its rapid and impressive evolution in the EV market. India has over 2.4 million registered EVs as of June 2023.

In the second quarter of 2023, EV sales stood at 371,340 units, a year-over-year increase of 66% compared to 223,293 units sold in the same period last year.

Recognizing the potential and importance of electric mobility, the Indian government took early initiatives by launching the National Electric Mobility Mission Plan 2020 in 2013, followed by the Faster Adoption of Manufacturing of EVs (FAME) Phase I and Phase II. These programs have allocated $1.25 billion to incentivize EV adoption through upfront subsidies and the development of robust charging infrastructure.

Under FAME II, subsidies are set to benefit one million electric two-wheelers, 500,000 electric three-wheelers, 55,000 electric cars, and 7,000 electric buses, with an additional $125 million dedicated to setting up charging stations. So far, the program has successfully supported over 200 thousand EVs, primarily two- and three-wheelers.

Recently, a parliamentary committee recommended extending the FAME-II program by two years beyond its March 31, 2024, deadline.